The taxpayer was a corporation that received payments from a neighboring property owner for deed restrictions placed on the taxpayer's property that would restrict development. These negative easement payments were paid to prevent the taxpayer from using its property in a manner that would diminish the value of the payor's property. The question was whether the payments were rents or income from the sale of a capital asset or gains from the sale of I.R.C. Sec. 1231(b) property that would result in the taxpayer, a C corporation, having personal holding company (PHC) income in excess of 60 percent of its adjusted ordinary gross income for the tax year which would trigger the PHC tax of 20 percent on undistributed PHC income. The IRS determined, based on the Eighth Circuit's holding in Morehouse, that the payments were "rents" paid for the "use" of the taxpayer's property. As such, the payments were PHC income. However, the conclusion of the IRS would also have application in situation's involving the government's use of property to enhance wildlife and conservation which would mean that the payments would not be subject to self-employment tax. Such payments would be "rents from real estate" and would be excluded from self-employment tax in the hands of a non-materially participating farmer, or a non-farmer. CCM 20152102F (Feb. 25, 2015).
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